Sirius/XM Stock Heading To Channel Zero

Despite my wife’s contention that there’s never anything on and that the the Oprah channel’s Dr. Oz show is poorly scheduled, I generally enjoy my Sirius subscription, which now comes with extra XM. As I’ve noted before, Phoenix radio is about as bad as could be imagined and I’m generally too lazy to actually bring discs into the car to listen to, so the subscription seems like a decent deal. However, given the company’s recent financial news, I may end up regretting paying for six months in advance.

With satellite radio’s patron, the car industry, collapsing, things aren’t looking good for the recently merged Sirius/XM: The stock’s at 14 cents and industry types are predicting it could fall further. That seems bad.

At least one financial analyst is now even comfortable being quoted using the “B” word — bankruptcy.

CNNMoney: “The outlook for Sirius XM has grown increasingly worrisome and at the current time looks bleak,” said Frederick Moran, an analyst with Stanford Group. “At this point, you have to question whether Sirius XM will survive 2009 in its current structure. There is a likelihood that it could enter bankruptcy.”

As my colleague Henry Blodget said Tuesday, yes, Sirius could go to zero. (We’ve updated the numbers as Sirius’ market cap has had $200 million wiped off in the last two days.)

Mel Karmazin’s company currently has an equity market capitalization (value of the stock) of $455 million. It also $360 million of cash and $3.3 billion of debt, so its “enterprise value”–the implied value of the business itself–is about $3.5 billion. The only thing that has to happen for Sirius (SIRI) stock to go to zero is for the market to conclude that the company is worth less than $3 billion. This would wipe out the company’s stock value, leaving the company in the hands of the debt-holders.

Why might the market soon conclude that Sirius is worth less than $3 billion? Because it’s running out of cash. In the first 9 months of this year, Sirius had negative free cash flow (cash from operations – capex) of $300 million. $360 million of cash won’t last long at that burn rate.

There wasn’t any specific news sending the stock into freefall, although the post-channel merger buzz for the company has been miserable. I don’t know if I’ve noticed any particular difference in each channel’s playlist–this is possibly because most channels seems to hang on to their Sirius staff at the expense of XM’s personnel–but no satellite radio subscriber I know has described the change as positive. Even if there wasn’t a specific channel a listener mourned the loss of, the entire “change under the cloak of night” channel shift was shady, at best. If people are paying for your product, would it hurt to let them know more than two seconds in advance that a significant change was coming? Instead, I’m sure the company’s customer service lines were flooded with complaints and probably cancellations as well. If XM Sirius can survive their stock price and apparently one billion dollars in debt owed this year (ouch), I’ll be happy to hang around and suffer through XMU’s current obsession with Passion Pit. But I’m not optimistic.